Finance department is crucial in driving performance and digitalisation in the company. In the last decade the cost of the finance departments across industries is decreasing, at the same time finance leaders report spending 19% more time on value-added activities.
Source: McKinsey, Finance 2030: Four imperatives for the next decade
What can the finance department do to drive similar results accros the organization? Here are some key areas for the finance department and individual team members to focus on in the future:
Data Management and Literacy
With the volume of global data growing by 66% each year, it’s easy to imagine how we can be overwhelmed and lose sight of what’s important. The finance department has a central role in defining a data management strategy to provide (i) valuable insights from (ii) high-quality data in the (iii) right moment. This is the foundation for business performance and any future digitalization efforts.
The ever-growing mountains of data need to be understood and properly utilized and currently “between 60% and 73% of all data within an enterprise goes unused for analytics”. One of the main reasons for this is lack of data literacy within organizations - only 21% of the global workforce are fully confident in their data literacy skills.
Gartner defines data literacy as “the ability to read, write and communicate data in context”. Its definition has shifted in the past decade from being a mostly technical skill to a more broad set of skills including meaningful data interpretation, asking the right question, testing comparable scenarios, and creating visualization to communicate the outcome to all stakeholders.
In a nutshell, to support the decision-making finance must be able to quickly process high-quality data. The data and software tools are here to help, but, for now, you need to know how to utilize them properly.
Implementation of New Technologies
The finance department is the natural point of convergence for all data across the organization which makes it the obvious choice for deploying new technologies. Traditionally the initiatives came from IT or marketing departments, but the finance department and CFO were still largely involved. They needed to approve the budgets, understand the ROI of new technology, and eventually gather relevant data from the implemented solution.
Today 58% of CFO’s are taking on the responsibility of digitalization across the business, and 75% plan to allocate more resources to digital transformation in 2021. Understanding the implementation process in their domain gives the CFO’s knowledge needed to deploy similar processes in the entire organization.
In a previous post, I wrote about automation and the best areas within the finance function for the deployment of new technologies. The first step is decreasing transactional activities mostly related to accounting and progression to more complex areas like financial planning, controlling, and risk management.
For members of the finance team participating in the implementation of new software is a great chance to learn:
how the systems work
how they can improve current processes
free up their time for more complex tasks.
Think of it this way - in the future, you might not work as an accountant but rather as a highly-skilled consultant for accounting software.
Supporting Decision-making
Data management and modern technology both serve the purpose of enabling companies to make smarter and faster decisions. The finance department plays a key role in this process and supports the management through various channels:
Advanced analytics - as defined by Gartner, is “the autonomous or semi-autonomous examination of data or content using sophisticated techniques and tools, typically beyond those of traditional business intelligence (BI), to discover deeper insights, make predictions, or generate recommendations.”
Predictive modeling - by analyzing historic and current data a model is generated to predict potential outcomes. It’s mostly applied in the planning and forecasting process to identify trends and deliver more accurate predictions. New data is continuously added to the model enabling it to keep track of the changes.
Real-time reporting - It goes under various terms (ad-hoc reporting, self-service reporting, or data exploration) but they all mean “reports created for one-time use”. Unlike formal reporting which uses larger amounts of data and presents them in a formalized structure, on-demand reports answer specific questions and present the information in any format the user defines. According to recent research from FP&A Trends, “only 35% of companies can access real-time data to support fact-based decision making”.
Scenario planning - identifies uncertainties, external indicators, and explores multiple versions of the future by combining them with historic data. The goal of scenario planning is not predicting the future but exploration of potential outcomes, their impact on the business, and drafting a strategic response when/if a certain scenario plays out.
Data visualization - Sounds simple, but it’s crucial not just to understand the data but also to present it in a graphical format understandable to all stakeholders with different professional backgrounds.
In short, finance professionals need to provide clearer, faster, and richer insights.
Increasing Collaboration
The finance department used to be perceived as a closed community often overwhelmed with operational tasks and rarely collaborating with other departments. There was (and is) an exception to this rule - the budgeting process. At some point, every department needs to make a case for their budget and negotiate with the finance department. Considering the fact that the majority of companies (over 70%) use spreadsheets for budgeting and forecasting the whole thing becomes even more complex and time-consuming.
This makes it a great case where finance can initiate collaboration and add value to the entire organization. We covered some general recommendations to improve enterprise budgeting in our recent blog. The finance department can rely on new technology to solve this pressing issue. Implementing a cloud-based planning and budgeting software could bring enormous benefits for every department. Modern budgeting software have built in security features making it impossible to accidentally delete data or formulas. Collaboration is easy with in-app communication, process management and task assignment to individual team members. Last but not least, everyone is working with the same data and reports can be generated automatically.
If you'd like to see how a cloud budgeting software can help your company click here to book a customized Farseer demo or contact me directly.